A digital beast lurks.
As Amazon Inc. (AMZN) reportedly nears a decision on whether to make a foray into the pharmacy market, observers have weighed in on how the e-commerce giant's potential entry could impact the landscape.
Ivan Feinseth, chief investment officer and director of research at Tigress Financial Partners LLC, said told TheStreet that he believes Amazon will enter the market.
Feinseth, who covers companies including Amazon and CVS Health Corp. (CVS) , noted that prescription fulfillment is a $600 billion a year industry and probably growing.
In addition, "what Amazon's real business is, and what they do well, is supply chain management and fulfillment and this is just another supply chain for them to manage," he said.
CNBC reported on Oct. 6 that Amazon plans to make a decision before Thanksgiving on whether to enter the prescription drug market.
An Amazon representative told TheStreet that the company does not comment on rumor and speculation.
If it decides to move forward, Amazon's entry could have have a negative impact on drug store chains including CVS and Walgreens Boots Alliance Inc. (WBA) . These companies could see a decline in drug sales and sales of other items like shampoo that customers might pick up at the store while waiting to get their prescriptions filled, Feinseth said.
What Amazon will likely fulfill will be ongoing prescriptions, he said, adding that for one-off prescriptions people might still go to the pharmacy.
On an earnings call in June, Walgreens executive vice chairman and CEO Stefano Pessina said he doesn't think Amazon will be interested in entering the pharmacy space in the near future. But if he were wrong, Pessina said Walgreens would not rule out partnering with Amazon.
At the Morgan Stanley Global Healthcare Conference in September, CVS president and CEO Larry Merlo was asked whether his firm would be open to teaming up with Amazon. "We would never rule anything out," Merlo responded.
For his part, Morningstar Inc. analyst Vishnu Lekraj explained to TheStreet that he doesn't think that Amazon "offers much of a threat over the near term."
"In order to get involved in the pharmacy space as a wholesaler, retail pharmacy or a PBM [pharmacy benefit manager], it takes a lot of work in terms of building up operations." said Lekraj. In addition, "the legal requirements and mandates you have to be compliant with in order to be one of those entities are enormous," he said.
Lekraj said the most likely area where Amazon could make a play is retail pharmacy. If Amazon does decide to move into the space, Lekraj thinks its entry will be years away and it will likely partner with most of the entities along the supply chain.
Another analyst does not see Amazon entering the space any time soon.
"We believe that it's unlikely that Amazon enters the prescription pharmacy business in a meaningful way over the NT [near term]," wrote Jefferies LLC analyst Brian Tanquilut in an Oct. 2 note. He said Amazon will have to enter into contracts with the leading PBMs for it to be a truly viable pharmacy option and although this seems doable, "competitive factors will likely hold most PBMs back from signing a network contract with Amazon that would create a large, formidable competitor."
A more likely, but still not highly probable, scenario is Amazon could get into the prescription pharmacy business in the lower-cost generic cash market, wrote Tanquilut, referring to less than $10 per script.An Oct. 10 note from Morgan Stanley & Co. LLC analysts said Amazon could build virtual pharmacies that leverage its Prime Now network, while using its roughly 460 new Whole Foods locations to add retail pharmacies. This lighter brick-and-mortar footprint could ultimately drive drug pricing down, analysts added.
Diplomat Pharmacy Inc. (DPLO) is among the companies most insulated from Amazon's potential move, according to Morgan Stanley analysts, pointing to the "complexity of specialty drugs, which we think does not fit within the Amazon model."
They also noted that UnitedHealth Group Inc. (UNH) / Optum "has less mail pharmacy exposure and a hybrid medical / pharmacy business model is better positioned than peers if pricing models were to transition and Optum could be in a position to partner with Amazon, if the company opted to build a relationship with a PBM."
Amazon was among the topics that came up during UnitedHealth's third-quarter earnings call on Oct. 17.
In response to an analyst's question about Amazon's potential entry to the pharmacy market, John Prince, CEO of UnitedHealth's pharmacy benefit management unit OptumRx, said that the company is channel agnostic as it relates to partners in the market. "[w]e're open to new distribution partners," Prince said.
- Annie Palmer contributed to this article
More of What's Trending on TheStreet: